The 2026 Reality
Why parents must help
3-bedroom apartment in periphery: $400K-$550K. Required down payment: $100K-$140K.
Young couple (age 28-32): Combined net salary of $6,000. Savings of $25K-$40K at most.
The gap: They're missing $70K-$100K. Without parental help - no chance.
The solution: Parents who know how to help correctly enable children to enter real estate without breaking their pension savings.
Method 1: Breaking Pension Fund (The Foolish Way)
Most parents think this is the only option: "We'll break our pension fund, help the kids, and manage somehow." This is an expensive mistake.
The Real Cost of Breaking Pension
Example: Withdrawing $80,000
- Gross amount:$80,000
- Tax (35%):-$28,000
- Withdrawal fees:-$800
- Net received:$51,200
You lost $28,800 just in taxes and fees!
But that's not all - the big damage:
That $80,000 would have grown at 6% annually (historical average). In 20 years, it would have become $256,000.
The real cost of withdrawal: over $250,000!
When does it make sense anyway?
There are rare cases where it's still the right solution:
- Parents very close to retirement (less than 5 years) and savings are very large
- No other option (no property, no loan approval)
- Children winning government housing program and opportunity will disappear within days
Method 2: Consumer Loan (Expensive but No Pension Damage)
Parents take a consumer loan from the bank or credit company and transfer the money to children. Advantage: Pension savings stay intact. Disadvantage: High monthly payment.
Numerical Calculation
$55,000 Loan
- Term:5 years (maximum)
- Interest:9% (average)
- Monthly Payment:$1,140
Total paid: $68,400 ($13,400 in interest)
Who is this for?
- Parents with high income ($4,000+ net) who can afford high payments
- No property to leverage (renters, or property already fully mortgaged)
- Have a quick repayment plan (e.g., selling another asset in the future)
Method 3: Home Equity Loan (Our Recommended Approach)
If you own a property - you have the cheapest solution to help your children.
Parents take a "home equity loan" (all-purpose mortgage) against their property - at low interest, spread over 20-25 years - and transfer the money to children as down payment.
Monthly Payment Comparison
Pension Fund
Withdraw $55K
Tax: 35%
Net: $36K
Monthly payment:
$0*
*But $19K lost!
Consumer Loan
Amount: $55K
Term: 5 years
Interest: 9%
Monthly payment:
$1,140
Home Equity Loan
Amount: $55K
Term: 25 years
Interest: 4%
Monthly payment:
$290
Savings: $850/month vs consumer loan!
And your pension fund stays intact and continues growing.
How does it work?
- Property Appraisal - Valuation of parents' home is conducted
- LTV Check - Loan can reach up to 70% of property value (including existing mortgage)
- Loan Approval - Bank/insurance company registers lien on property
- Money Transfer - Funds go directly to children or attorney in the transaction
- Repayment - Parents pay low monthly payment ($250-$400)
Want to Calculate Your Options?
We'll check your situation for free and present all options - banks, insurance companies, and special funds
Bonus: Directive 451 - Parents' Property as Collateral
There's another option - parents don't take a loan themselves, but simply pledge their property as collateral for the children's mortgage. This is called Directive 451 - Family Wealth Services.
How does it work?
- Children apply for mortgage (for their property)
- Bank requests "additional collateral" - parents' home serves as guarantee
- Children get better mortgage terms (lower interest, higher approval)
- Parents don't pay money - just "guarantee" if children can't repay
The Risk
If children can't repay the mortgage (job loss, economic crisis) - the bank can approach parents and demand repayment from their property.
Therefore: Use Directive 451 only if you're confident children are financially stable and have clear repayment capacity.
Comparison Table - Which Method to Choose?
| Criteria | Pension Fund | Consumer Loan | Home Equity Loan |
|---|---|---|---|
| Monthly Payment ($55K) | $0 | $1,140 | $290 |
| Tax & Fees | 35%-40% | 0 | 0 |
| Pension Damage | Yes (irreversible) | No | No |
| Property Required | No | No | Yes |
| Approval Time | Immediate | 48 hours | 3-5 weeks |
| Recommendation | Last resort | Only if no property | Best Option |
Summary - How to Help Children Correctly
If you own a property: Use it. Take a home equity loan - cheapest and smartest.
If no property: Consumer loan is preferable to breaking pension fund (despite high payment).
Plan ahead: If you have 3 children, think how you can help everyone equally.
Don't damage your future: Pension fund is your retirement security. Don't break it unless no other choice.
One conversation can save you thousands monthly.
Frequently Asked Questions
Everything parents need to know
It depends on the method: Pension fund withdrawal - 35%-40% tax + lost retirement savings. Consumer loan ($40K for 5 years) - ~$860/month payment. Home equity loan ($40K for 25 years) - only ~$250/month! The difference is $610/month that stays in the parents' pocket.
Sources & Additional Information
Information in this article is based on official data, regulation, and expert recommendations:
- Bank of Israel - Mortgage Interest Data
Tracking mortgage interest rates and their impact on home equity loans
- Ministry of Finance - Mortgage Regulations
LTV regulations (70% of property), Directive 451, and credit guidelines
- Family Wealth Services - RealFix
Comprehensive consultation for parents on intergenerational transfers and property leverage
- Mortgage Calculator - Calculate Yourself
Accurate calculation of monthly payment for any amount and term
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Legal Disclaimer
The information and simulations presented on this website are for illustrative purposes only and do not constitute a binding offer for credit or financial advice. Credit Approval: Subject to final underwriting, clean credit data (positive credit score), clean banking history, and meeting the threshold requirements of the financing institutions. Interest Rates: The interest rates displayed are estimates only, based on average market data, and may change at any time according to the client's individual risk profile and economic conditions (Bank of Israel interest rate changes / CPI). No Commitment: RealFix does not guarantee loan approval or the terms displayed in the calculator. E&OE.
